Should I Buy Property for Investment in Malaysia?

Investing in property is a popular strategy for building wealth and securing your financial future.

Malaysia, with its vibrant real estate market, presents an attractive opportunity for both local and international investors. However, deciding whether to invest in property can be a complex decision with many factors to consider.

In this blog post, we'll explore the key reasons why you should (or shouldn't) buy property for investment in Malaysia.

Investing in Malaysian Property

Return on property for investment

1. Slow but steady economic growth

If Malaysia's economy experiences slow but steady growth at an average annual rate of 3%, RM 1,000,000 would be worth approximately RM 1,343,900 in 10 years.

This calculation highlights how even modest growth can lead to significant increases in investment value over a decade. Investors should always consider inflation and other economic factors that may affect purchasing power over time when evaluating potential returns on investment.

Calculation (assume an average annual growth rate of 3%) :

Future Value Calculation

The future value (FV) of an investment can be calculated using the formula:

FV=PV×(1+r)n

Where:

FV = future value
PV = present value (initial investment)
r = annual growth rate (expressed as a decimal)
n = number of years

Applying the Values

PV = RM 1,000,000
r = 3% or 0.03
n = 10 years

Step-by-Step Calculation

1. Convert the growth rate to decimal: 3% = 0.03

2. Plug the values into the formula: FV=RM1,000,000×(1+0.03)10

3. Calculate:

First, calculate (1+0.03)10:

(1+0.03)10=(1.03)10≈1.3439

Now, multiply by the present value:

FV≈RM1,000,000×1.3439≈RM1,343,900

2. Fast and furious economic growth

If Malaysia's economy experiences rapid growth at an average annual rate of 6%, RM 1,000,000 would be worth approximately RM 1,790,800 in 10 years.

This calculation illustrates how aggressive economic growth can significantly enhance the value of an investment over time.

Calculation (assume an average annual growth rate of 6%) :

Applying the Values

PV = RM 1,000,000
r = 6% or 0.06
n = 10 years

Step-by-Step Calculation

1. Convert the growth rate to decimal: 6% = 0.06

2. Plug the values into the formula: FV=RM1,000,000×(1+0.06)10

3. Calculate:

First, calculate (1+0.06)10:

(1+0.06)10=(1.06)10≈1.7908

Now, multiply by the present value:

FV≈RM1,000,000×1.7908≈RM1,790,800

The Pros of Investing in Malaysian Property

1. Steady Capital Appreciation

One of the primary benefits of investing in Malaysian property is the potential for steady capital appreciation over time.

The Malaysian property market has historically shown consistent growth, with average annual price increases ranging from 5-10% in many areas.

This steady appreciation can help grow your investment and build long-term wealth.

2. Rental Income Potential

Investing in Malaysian property can also provide a reliable stream of rental income.

With a growing population and increasing demand for housing, there is often strong demand for rental properties, especially in urban centers and high-growth areas.

This rental income can help offset your mortgage payments and provide a steady cash flow.

3. Diversification of Investment Portfolio

Adding property to your investment portfolio can help diversify your assets and mitigate risk.

Real estate is often considered a stable, tangible investment that can provide a hedge against inflation and market volatility, helping to balance out more volatile investments like stocks or cryptocurrencies.

4. Tax Benefits

Investing in Malaysian property can also come with certain tax benefits.

For example, you may be able to deduct mortgage interest, property taxes, and other expenses related to the investment property from your taxable income.

Additionally, some regions offer tax incentives or rebates for property investors, further enhancing the financial benefits.

5. Potential for Leverage

One of the unique advantages of investing in property is the ability to leverage your investment.

By taking out a mortgage, you can effectively control a much larger asset than you could with the same amount of cash.

This leverage can amplify your returns, but it's important to carefully manage the associated risks.

The Cons of Investing in Malaysian Property

1. High Upfront Costs

Investing in property requires a significant upfront investment, including the down payment, legal fees, stamp duties, and other transaction costs.

These upfront costs can be a barrier for some investors, especially those with limited capital.

2. Ongoing Expenses

In addition to the initial investment, there are also ongoing expenses associated with owning an investment property, such as mortgage payments, maintenance, repairs, property taxes, and insurance.

These expenses can eat into your rental income and overall returns.

3. Market Volatility

While the Malaysian property market has generally shown steady growth, it is not immune to market fluctuations and economic downturns.

Changes in government policies, interest rates, or broader economic conditions can impact property values and rental demand, potentially affecting your investment returns.

4. Tenant Management Challenges

Renting out your investment property means dealing with the responsibilities of being a landlord, such as finding reliable tenants, handling maintenance and repairs, and addressing any issues that may arise.

This can be time-consuming and may require additional resources or the hiring of a property management company.

5. Illiquidity

Real estate is generally considered a relatively illiquid asset, meaning it can be challenging to convert your investment into cash quickly.

This can be a concern if you need to access your funds in an emergency or if you want to rebalance your investment portfolio.

Key Considerations for Investing in Malaysian Property

1. Location, Location, Location

When investing in Malaysian property, the location of the property is crucial.

Look for areas with strong economic growth, infrastructure development, and high population density, as these factors can drive rental demand and capital appreciation.

Consider factors like proximity to transportation, amenities, and job centers.

2. Property Type and Condition

The type of property you invest in can also impact your returns.

Consider factors such as the property's size, number of bedrooms, and overall condition.

Newer properties may require less maintenance, but older properties can sometimes offer better value and opportunities for renovation and value-add.

3. Rental Potential and Yield

Carefully analyze the potential rental income and yield of the property.

Research comparable properties in the area, current rental rates, and occupancy levels to estimate the rental income you can expect.

Calculate the rental yield (annual rental income divided by property value) to assess the investment's profitability.

4. Financing and Leverage

Evaluate your financing options, including the availability and terms of mortgages and other financing instruments.

Understand the impact of leverage on your investment returns and the associated risks.

Carefully consider your down payment, interest rates, and the overall cost of financing.

5. Exit Strategy

Develop a clear exit strategy for your investment property.

Consider factors such as the expected holding period, potential future market conditions, and your long-term financial goals.

This will help you make informed decisions about when and how to sell the property to maximize your returns.

Topic that you may find interesting to explore:

Conclusion

Investing in Malaysian property can be a lucrative strategy for building wealth, but it's essential to carefully consider the pros and cons and conduct thorough research before making a decision.

By understanding the market, evaluating your financial situation, and developing a well-informed investment plan, you can potentially capitalize on the opportunities presented by the Malaysian real estate market.

Remember, investing in property is a long-term commitment, and it's crucial to seek professional advice from real estate experts, financial advisors, and tax specialists to ensure you make an informed decision that aligns with your investment goals and risk tolerance.

With the right approach, investing in Malaysian property can be a valuable addition to your investment portfolio.

Frequently Asked Questions (FAQs)

1. What is the most popular type of housing?

Terrace houses are among the most popular types of housing in Malaysia.

2. Why do traditional houses in Malaysia have a lot of windows?

They have many windows for ventilation and to stay cool in the tropical climate.

3. What is a superlink house?

A superlink house is a type of residential property that connects several units but offers more space than standard link houses.

4. Is it expensive to build a house in Malaysia?

Building costs can vary, but they are generally considered moderate compared to property prices.

5. How much salary is enough to live in Malaysia?

A monthly salary of RM3,000 to RM5,000 is generally adequate for comfortable living.

6. What is the average rent in Malaysia?

The average rent is approximately RM1,200 per month.

7. Is Kuala Lumpur expensive to live?

Yes, Kuala Lumpur can be considered expensive compared to other Malaysian cities.

8. How to rent a house in Malaysia?

Search online listings, contact agents, view properties, negotiate terms, and sign agreements.

9. What is the average salary in Malaysia?

The average salary is around RM3,000 to RM5,000 per month.

10. How much is the average room rent in Malaysia?

Average room rent ranges from RM300 to RM800 per month.

11. How much does it cost to live in Malaysia for a month?

Living costs can range from RM2,000 to RM4,000 depending on lifestyle choices.

12. What is the average price of a house in Malaysia?

The average price of a house is around RM400,000 to RM600,000.

13. Can a landlord enter without permission in Malaysia?

Generally no; landlords should provide notice before entering rented premises unless it's an emergency.

14. What to do if a tenant is not paying rent in Malaysia?

Communicate with the tenant first; if unresolved, legal action may be necessary for eviction.

15. What happens if you don't renew your tenancy?

You may need to vacate the property unless otherwise agreed with the landlord.

16. Can a landlord terminate a tenancy agreement early in Malaysia?

Yes, but usually only under specific circumstances stated in the lease agreement.

17. Can a landlord charge interest for late rent in Malaysia?

Yes, if stipulated in the tenancy agreement.

18. How much can a landlord increase rent in Malaysia?

Increases are typically subject to negotiation and local regulations but must be reasonable.

19. Can landlords cut off electricity in Malaysia?

No, landlords cannot cut off utilities except for legitimate reasons after proper notice.

19. What is the minimum tenancy period in Malaysia?

The minimum tenancy period is usually six months.

20. How to get rid of squatters in Malaysia?

Legal eviction processes must be followed according to local regulations.

21. Can a landlord refuse an option to renew in Malaysia?

Yes, if it's not stated in the lease agreement.

22. Is partition room illegal in Malaysia?

Partitioning rooms can be illegal if it violates local housing regulations or building codes.

23. Can a tenancy agreement be more than 3 years?

Yes, a tenancy agreement can be for more than 3 years.

24. How do I write a termination letter to a tenant?

Clearly state your intention to terminate the lease and include relevant details such as dates and reasons.

25. What happens when a tenancy agreement expires in Malaysia?

The agreement ends, and tenants may need to vacate unless renewed or extended.

26. What is the notice period for eviction in Malaysia?

Typically, landlords must give 14 days' notice unless otherwise specified in the lease agreement.

27. Can landlords charge interest for late rent in Malaysia?

Yes, if specified in the tenancy agreement.

28. What are the duties of a landlord in Malaysia?

Landlords must maintain the property, ensure safety standards are met, and respect tenant rights.

29. What is the shortest tenancy you can have?

The shortest tenancy period usually starts from one month but often six months is standard.

30. What is the shortest time you can rent an apartment?

The minimum rental period can generally be one month.

31. How to do short lets?

List your property on platforms like Airbnb and manage bookings directly or through an agent.

32. How short is a short term let?

Short-term lets typically refer to rentals lasting less than six months.

33. Which is best, rental or lease?

It depends on your needs; renting offers flexibility while leasing provides long-term stability.

34. What is the longest tenancy agreement you can have?

Tenancy agreements can be set for up to 99 years but typically range from 1 to 3 years for residential properties.

35. Can tenancy be more than 3 years?

Yes, tenancies can extend beyond three years based on mutual agreement.

36. What is the difference between tenancy and lease?

A tenancy typically refers to shorter agreements (under 3 years) while leases are longer-term contracts.

37. How to register a lease in Malaysia?

Registration involves submitting documents at the relevant land office or authority along with fees applicable.

38. What's the difference between renting and leasing?

Renting usually refers to short-term agreements while leasing implies longer-term commitments with fixed terms.

39. What is the shortest time you can rent a property?

Generally one month but often six months is standard for formal agreements.

40. What is the weakest possible tenancy?

A verbal agreement can be considered weak due to lack of enforceability compared to written contracts.

41. Is a tenancy agreement 6 month or 12 month?

Typically, tenancy agreements are often for either six months or twelve months depending on parties’ preferences.

42. How long are most rental agreements?

Most rental agreements range from six months to one year.

43. Can a landlord force a tenant to leave in Malaysia?

Only through legal eviction processes must be followed according to local laws.

44. What happens if you don't renew your tenancy?

The tenant may need to vacate unless otherwise agreed upon with the landlord.

45. Do tenants have to pay for wear and tear?

Tenants are generally responsible only for damages beyond normal wear and tear.

46. What to do if a tenant is not paying rent in Malaysia?

Address the issue directly with communication; if unresolved, legal action may be necessary.

47. Can a landlord terminate a tenancy agreement early in Malaysia?

Yes, but only under specific conditions outlined in the lease agreement.

48. Can landlords cut off electricity in Malaysia?

No, landlords cannot disconnect utility services without proper legal justification.

49. How much can a landlord increase rent in Malaysia?

Rent increases must be reasonable and often need mutual consent as stipulated in agreements.

50. How much is house rent in Malaysia per month?

Rental prices typically range from RM1,000 to RM5,000 depending on location and property type.

51. How much is the deposit for rent in Malaysia?

Deposits usually equal one or two months' rent.

52. How to leave a fixed term tenancy?

Notify your landlord as per contract terms; you may also need to fulfill any notice period.

53. Can a tenancy agreement be renewed?

Yes, many agreements allow for renewal upon mutual consent.

54. How do you change a tenancy agreement?

Both parties must agree on changes; document amendments should be signed by both.

55. What is a tenancy extension?

A tenancy extension prolongs the duration of an existing rental agreement beyond its original end date.

56. What happens at the end of a fixed term tenancy?

The tenant may need to vacate unless renewed; landlords often conduct final inspections.

57. Can a landlord refuse an option to renew Malaysia?

Yes, if not included within agreed contractual terms.

58. How to deal with people not paying rent?

Communicate directly; escalate through legal channels if necessary.

59. What is the notice period for eviction in Malaysia?

Typically around 14 days unless otherwise specified.

60. Can landlords disconnect electricity in Malaysia?

No; they must maintain utility services unless legally justified otherwise.

61. How to evacuate a tenant?

Follow legal eviction procedures including proper notice as required by law.

62. What is the Tenancy Agreement Act in Malaysia?

It's legislation that governs rental agreements and protects tenant rights.

63. How to obtain an eviction order?

Apply through local courts after following necessary legal procedures regarding tenant non-compliance.

64. What is Writ of distress?

A court order enabling landlords to recover unpaid rent through seizing tenants' possessions under specific conditions.

65. Who pays for wear and tear?

Landlords typically cover regular wear while tenants handle any excessive damage beyond normal use.

66. What is the most a landlord can charge for damages?

Charges must reflect actual repair costs incurred due to tenant negligence as documented during inspections.

67. Who should pay for a tenancy agreement in Malaysia?

Generally, tenants bear this cost unless negotiated otherwise.

68. How much can you claim for wear and tear?

Claims depend on actual depreciation values rather than fixed amounts; fair assessments should apply based on prior conditions noted during move-in/out inspections.

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About the Author

Danny H

Seasoned sales executive and real estate agent specializing in both condominiums and landed properties.